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A couple of weeks ago, we returned to Hudson Executive Capital (HEC) and its pretenses to activist investing (below). Since then, a couple of interesting developments help to reinforce the point that activist investing demands a serious and concerted effort to shake up portfolio companies.
First, HeartWare and Engaged Capital resolved their activist situation, evidently without involving HEC. The company and Engaged agreed to terminate the acquisition of Valtech Cardio and add an independent director approved by Engaged. Engaged thus withdrew its competing board nominees.
No sign of HEC here. No "CEO Partners" from HeartWare become the independent director, even though several have relevant health care and technology experience. No consulting with HEC on selecting a new the director. Not surprising, since HEC posed no threat to HeartWare leadership.
HeartWare shares recovered nicely since Engaged announced its involvement, too. No such bounce after HEC filed its Form 13D.
Second, HEC filed its first-ever Form 13F:
- It shows $318 million in seven investments, but it mis-priced its SPDR S&P 500 ETF, we hope an honest typo. So, it actually has $228 million.
- It filed a full two weeks before the customary February 15 deadline. Are the six common share investments and an ETF simple enough that they can file early and go home for the day? Does it want to show assets and investments a couple of weeks early, say as a tactic with some of its portfolio companies?
- They show five companies besides HeartWare. HEC reportedly called for a break-up at CIT Group, although it's not clear how it plans to use its 0.5% stake to do that. It's also not clear why they want to publicize this in a Form 13F filing, when they could issue a news release or just remain quiet.
- As for the other four, it might have followed Glenview Capital into a current activist project at Tenet Healthcare, where HEC owns 1.5% of the outstanding shares. Cabot Microelectronics (2.4%), Whitewave Foods (0.4%), and Comerica (0.8%) would all represent new activist situations, whatever that represents for HEC.
We still can't see how the portfolio companies or other investors at these companies will take HEC seriously as an activist investor. For all of its publicity, it hasn't made large bets on these companies. These relatively small positions will get them meetings with executives, but not likely support from other shareholders.
Again, we'd love to see executives, directors, and other portfolio managers take HEC seriously. Based on the recent evidence, we just don't see it happening. |
Well, it certainly doesn't hurt. Still, it takes more than an SEC filing or an angry letter to management to encourage (or force) change at an underperforming portfolio company with entrenched executives and directors.
Hudson Executive Capital (HEC) made a splash when it formed early last year, although we remain skeptical. Last week HEC finally announced its first project, as financial media picked up the story approvingly.
It's worth studying the situation. Established activist Engaged Capital began the work at medical device manufacturer HeartWare (HTWR). In a current blog post, we explain it appears HEC merely followed Engaged into the company, with no clear or specific plan for change there.
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